What is the compulsion to increase interest rates, will inflation be stopped?

The first monetary policy meeting of the Reserve Bank of India for the financial year 2023-24 has started. The policy rate will be announced on 6th April. It is expected that this time RBI will increase the policy rate by 25 basis points. This means that there will be an increase in interest rates again.

If this increase happens this time, then the repo rate in the country will reach the high of 7 years. By the way, there are many questions regarding this. Why does RBI want to increase interest rates in the first place? The second question is, will inflation be controlled after the increase in interest rates? Let’s try to understand.

There may be an increase of 25 basis points

The Reserve Bank of India can increase the monetary policy meet by 25 basis points. After which the repo rate in the country will come down to 6.75 percent. This means that repo rates will be at a 7-year high. This will be the 7th consecutive time when the Reserve Bank of India will increase the interest rates. This means that between May 2022 and April 2023, RBI would have increased interest rates by 275 basis points.

Read this also:- Interest rates may go up to 7-year high, indications from inflation data

RBI first increased 40 basis points in May 2022 and then increased by 50 basis points for three consecutive times. After that in December, RBI increased 35 basis points. In the month of February, RBI had increased by 25 basis points, which was the last increase for the financial year 2022-23.

Why is RBI compulsion to increase interest rates?

1. Dearness :- Retail inflation in India is more than 6 percent. Inflation was seen at around 6.50 per cent in the months of January and February. This remains the biggest concern for RBI.
2. Pressure from Global Central Banks :- Recently, from Fed to EU and UK Central Banks have increased the interest rates. The Fed increased by 0.25 percent. At the same time, the British Bank also increased by 25 basis points. The European Bank had increased by 50 basis points even after the Credit Suisse crisis.
3. Crude oil :- Both OPEC and Russia have cut crude oil production. Saudi has decided to cut 5 lakh barrels per day. Iraq has decided to cut 211,000 barrels per day, UAE 144,000 barrels per day, Kuwait 128,000 barrels, Algeria 48,000 barrels per day and Oman 40,000 barrels per day. After which the price of Brent crude oil has come down to $85 after an increase of more than 6 percent. WTI prices have also crossed $80.50 per barrel.
4. Unseasonal rain: – The unseasonal rains in the country, which started from the last week of March, continued unabated in April as well. Because of which there is a possibility of crop failure. Due to this, the prices of wheat and seasonal fruits and vegetables are expected to increase. Due to which interest rates are being forced to increase.
5. Oil war :- The US is upset with the announcement of crude oil production by the countries involved in OPEC Plus. Due to which the possibility of starting an oil war has arisen in both the factions. This can be called a kind of strategic battle. To win this, America can increase its oil inventories and also open the doors of the reserve. Due to which tension may arise in OPEC Plus and US.

Read this also:- Election is coming, this time the EMI of the loan will increase for the last time!

Will inflation come down?

There is hardly any chance of reducing inflation in India. By the way, if we talk about March, this time the retail inflation is likely to come down to 6, but it is difficult to control inflation in the coming months like April and thereafter. Due to this, increase in the prices of crude oil. The prices of petrol and diesel have not reduced in India already. It is going to be a year, there is no change in the price of petrol and diesel in the country’s capital Delhi. The surprising thing is that the wholesale inflation in the country has reached a multi-month low. Even after that, core inflation remains a cause of concern.